Circular No. 05/2014/TT-NHNN guiding the opening and use of indirect investment capital accounts for conducting foreign indirect investment activities in Vietnam.

CIRCULAR

Guidelines for opening and using indirect investment capital accounts to carry out foreign indirect investment activities in Vietnam.

Guidelines for opening and using indirect investment capital accounts to carry out foreign indirect investment activities in Vietnam.t s

____________________

Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

No. 06/2013/UBTVQH13 dated March 18, 2013;

Pursuant to the Investment Law No. 59/2005/QH11 dated November 29, 2005;

BASED ON THE SECURITIES LAW NUMBER 70/2006/QH11 OF JUNE 29, 2006;

BASED ON THE LAW AMENDING AND COMPLEMENTING CERTAIN PROVISIONS OF THE SECURITIES LAW NUMBER 62/2010/QH12 OF NOVEMBER 24, 2010;

Pursuant to the Foreign Exchange Ordinance No. 28/2005/PL-UBTVQH11 dated December 13, 2005;

Pursuant to Ordinance No. 06/2013/PL-UBTVQH113 dated March 18, 2013 amending and supplementing certain articles of the Foreign Exchange Ordinance;

Pursuant to Decree No. 156/2013/NĐ-CP dated November 11, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam (hereinafter referred to as the State Bank);

At the proposal of the Director of the Department of Foreign Exchange Management,

The Governor of the State Bank issues this Circular guiding the opening and use of indirect investment capital accounts to carry out foreign indirect investment activities in Vietnam.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

This Circular prescribes the procedures for opening and using indirect investment capital accounts to conduct transactions related to foreign indirect investment activities in Vietnam.

Article 2. Applicability

1. This Circular applies to the following subjects:

a) Foreign investors who are non-residents carrying out indirect investment activities in Vietnam;

b) Organizations and individuals related to foreign indirect investment activities in Vietnam.

2. This Circular does not apply to foreign investors who are residents, i.e., organizations and individuals from abroad. These entities shall conduct indirect investment activities in Vietnam in accordance with current securities laws and other relevant legal regulations.

Article 3. Explanation of Terms

In this Circular, the following terms shall be understood as follows:

1. "Foreign investor" includes non-resident organizations and individuals from abroad carrying out indirect investment activities in Vietnam.

2. "Authorized bank" includes commercial banks and branches of foreign banks authorized to operate and provide foreign exchange services according to the law.

3. "Authorized credit institution" includes credit institutions and branches of foreign banks authorized to operate and provide foreign exchange services according to the law.

4. "Indirect investment capital account" is a Vietnamese currency settlement account opened by a foreign investor at an authorized bank to conduct permitted income and expenditure transactions related to foreign indirect investment activities in Vietnam.

Article 4. General Principles

1. All foreign indirect investment activities of foreign investors in Vietnam must be conducted in Vietnamese currency. Transactions related to foreign indirect investment activities of foreign investors in Vietnam must be carried out through one (1) indirect investment capital account opened at one (1) authorized bank.

2. When conducting foreign indirect investment activities in Vietnam under the forms prescribed in Article 5 of this Circular, foreign investors must comply with the provisions of this Circular, the regulations on opening and using settlement accounts, the Securities Law, circulars guiding the Securities Law, current legal regulations related to foreign investors' capital contributions and share purchases in Vietnamese enterprises, and foreign investors' activities in the Vietnamese securities market, and other relevant legal provisions.

3. The balance on the indirect investment capital account of a foreign investor may not be transferred to term deposits or savings deposits at credit institutions or branches of foreign banks.

Article 5. Forms of Indirect Foreign Investment in Vietnam

The activities of indirect foreign investment in Vietnam by foreign investors include the following forms:

1. Contributing capital, buying and selling shares, equity interests in unlisted Vietnamese enterprises that have not been registered for trading on the Vietnamese securities market and not directly participating in management and operation of the enterprise.

2. Contributing capital, buying and selling shares in Vietnamese enterprises listed on the UpCom Market and the Listed Securities Market and not directly participating in management and operation of the enterprise.

3. Buying and selling bonds and other types of securities on the Vietnamese securities market.

4. Buying and selling other negotiable instruments denominated in Vietnamese dong issued by resident organizations permitted to issue such instruments within the territory of Vietnam.

5. Entrusting investment in Vietnamese dong through fund management companies, securities companies, and other organizations permitted to carry out entrusted investment business according to the provisions of the Securities Law; entrusting investment in Vietnamese dong through credit institutions and branches of foreign banks permitted to carry out entrusted investment business according to the regulations of the State Bank of Vietnam.

6. Contributing capital, transferring equity interests of foreign investors (not directly participating in management) in securities investment funds and fund management companies according to the provisions of the Securities Law.

7. Other forms of indirect investment as prescribed by law.

Chapter II

SPECIFIC PROVISIONS

Article 6. Opening an Indirect Investment Capital Account

1. When carrying out indirect investment activities in Vietnam, foreign investors must open one (01) indirect investment capital account at one (01) permitted bank to conduct permitted transactions according to the provisions of Article 7 of this Circular.

2. In cases where foreign investors are already opening and using an indirect investment capital account at a permitted bank but wish to open an indirect investment capital account at another permitted bank, foreign investors must close the previously opened indirect investment capital account, transfer the entire balance from this account to the new account. Procedures for opening and closing indirect investment capital accounts shall be carried out according to the regulations of the permitted bank.

Foreign investors may only conduct transactions on the newly opened indirect investment capital account as stipulated above after closing and settling the previously opened indirect investment capital account.

Article 7. Using an Indirect Investment Capital Account

The indirect investment capital account is used to conduct transactions related to indirect foreign investment activities in Vietnam as follows:

1. Income:

a) Receipts from selling foreign currency to permitted credit institutions;

b) Receipts from transferring equity interests, shares, selling securities and other negotiable instruments, receiving dividends, interest from bonds and negotiable instruments denominated in Vietnamese dong arising from indirect foreign investment activities in Vietnam;

c) Transfers from the Vietnamese dong-denominated settlement account of foreign investors opened at a permitted bank;

d) Transfers from the accounts of fund management companies, securities companies, credit institutions, and branches of foreign banks permitted to carry out entrusted investment business for foreign investors (applicable when foreign investors carry out indirect investment in Vietnam through entrusted investment);

đ) Other lawful receipts in Vietnamese dong of foreign investors related to indirect foreign investment activities in Vietnam.

2. Expenditure:

a) Expenditures to carry out indirect foreign investment activities in Vietnam under the forms prescribed in Article 5 of this Circular;

b) Expenditures to purchase foreign currency from permitted credit institutions to transfer capital, profits, and other lawful revenues abroad;

c) Expenditures to pay lawful costs incurred in Vietnam;

d) Transfers to the Vietnamese dong-denominated settlement account of foreign investors opened at a permitted bank;

đ) Transfers to the accounts of fund management companies, securities companies, and other organizations permitted to carry out entrusted investment business for foreign investors (applicable when foreign investors carry out indirect investment in Vietnam through entrusted investment);

e) Other lawful expenditures related to indirect foreign investment activities in Vietnam.

Article 8. Transfer of Investment Capital Abroad

In cases where there is a need to transfer capital, profits, and other lawful revenues from indirect investment activities abroad, foreign investors may use Vietnamese dong from their indirect investment capital accounts to purchase foreign currency at permitted credit institutions and transfer it abroad.

Article 9. Conversion of Foreign Investor's Investment Form

1. The conversion from indirect investment form to direct investment form or vice versa for foreign investors shall be carried out in accordance with the current laws on investment and other relevant laws.

2. In cases where foreign investors currently conducting indirect investment in Vietnam through purchasing shares or contributing capital to Vietnamese enterprises convert to direct investment form (participating in management and operation of enterprises), the account conversion shall be conducted as follows:

a) If foreign investors do not continue to conduct indirect investment activities in Vietnam, after completing the procedures for converting the investment form according to the current laws, foreign investors shall open a direct investment capital account denominated in Vietnamese dong at a permitted bank, then close the previously opened indirect investment capital account while transferring the balance from this account to the newly opened direct investment capital account denominated in Vietnamese dong to carry out direct investment activities in Vietnam in accordance with the current regulations on foreign exchange management and other relevant laws. Procedures for closing the indirect investment capital account and opening a direct investment capital account denominated in Vietnamese dong shall be carried out in accordance with the regulations of the permitted bank;

b) If continuing to conduct indirect investment activities in Vietnam, foreign investors may use the previously opened indirect investment capital account to carry out indirect investment activities in Vietnam based on complying with the provisions of this Circular and other relevant laws. At the same time, foreign investors shall implement the procedures for opening and using a direct investment capital account to carry out foreign direct investment activities in Vietnam in accordance with the current regulations on foreign exchange management for foreign direct investment in Vietnam and other relevant laws.

Chapter III

RIGHTS AND OBLIGATIONS OF PERMITTED CREDIT INSTITUTIONS

AND FOREIGN INVESTOR

Article 10. Rights and Obligations of Permitted Credit Institutions

1. When carrying out deposit and withdrawal transactions on indirect investment capital accounts for foreign investors, permitted credit institutions have the right to request foreign investors to present documents and certificates related to foreign indirect investment activities in Vietnam.

2. When carrying out deposit and withdrawal transactions on indirect investment capital accounts for foreign investors, permitted credit institutions have the responsibility to:

a) Guide foreign investors in implementing procedures for opening and closing indirect investment capital accounts and the provisions of this Circular;

b) Specify, inspect, and retain documents and certificates related to transactions conducted on indirect investment capital accounts presented by foreign investors to ensure that foreign exchange services are provided in accordance with the purpose and relevant legal provisions;

c) Sell foreign currency to foreign investors based on balancing the foreign currency sources of the credit institution;

3. In addition to the rights and obligations stipulated in Clause 1 and Clause 2 of this Article, permitted banks have the responsibility to guide foreign investors in implementing the conversion of indirect investment capital accounts in accordance with Article 17 of this Circular.

Article 11. Rights and Obligations of Foreign Investors

1. Foreign investors are permitted to carry out indirect foreign investment activities in Vietnam based on compliance with the provisions of this Circular and other relevant regulations of Vietnamese law.

2. When conducting transactions involving receipts and payments on indirect investment capital accounts, foreign investors shall be responsible for:

a) Declaring the contents of transactions related to indirect foreign investment activities in Vietnam according to the requirements and guidance of the authorized bank;

b) Presenting and supplementing documents, records, and certificates as required by the authorized bank.

Chapter IV

REPORTING SYSTEM

Article 12. Reporting Requirements for Authorized Credit Institutions

Authorized credit institutions shall report to the State Bank of Vietnam in accordance with the current reporting and statistical system regulations of the State Bank of Vietnam.

Article 13. Emergency Reporting Requirements

In cases of emergency or when necessary, foreign investors, authorized credit institutions, and branches of the State Bank of Vietnam in provinces and centrally-administered cities shall report relevant contents as required by the State Bank of Vietnam.

Chapter V

INSPECTION, AUDITING, SUPERVISION, AND VIOLATION HANDLING

Article 14. Inspection, Auditing, and Supervision

1. The State Bank of Vietnam and its provincial and centrally-administered city branches shall inspect, audit, and supervise the implementation of regulations by authorized banks and foreign investors concerning the opening and use of indirect investment capital accounts by foreign investors for carrying out indirect foreign investment in Vietnam.

2. Organizations and individuals subject to inspection shall be responsible for providing all necessary documents and materials as prescribed to ensure timely and effective inspections, audits, and supervision.

Article 15. Handling Violations

In case of violation of the provisions of this Circular, depending on the severity of the violation, foreign investors and authorized banks will be subject to penalties under applicable laws.

Chapter VI

IMPLEMENTATION

Article 16. Effective Date

1. This Circular takes effect from April 28, 2014.

2. This Circular replaces Circular No. 03/2004/TT-NHNN dated May 25, 2004, issued by the State Bank of Vietnam, guiding foreign exchange management for foreign investors' contributions and purchases of shares in Vietnamese enterprises.

Article 17. Transitional Provisions

Within ninety days from the date this Circular takes effect, foreign investors shall be responsible for implementing the conversion of indirect investment capital accounts to continue carrying out indirect investment activities in Vietnam as follows:

a) In the case where foreign investors have opened domestic currency contribution and share purchase accounts, foreign investors shall convert the names of these domestic currency contribution and share purchase accounts into indirect investment capital accounts;

b) In the case where foreign investors have opened domestic currency contribution and share purchase accounts and simultaneously have balances in domestic currency deposit accounts without fixed terms at securities companies' accounts opened at authorized banks:

- Foreign investors shall convert the names of their domestic currency contribution and share purchase accounts into indirect investment capital accounts;

- Foreign investors shall transfer their balances in domestic currency from the securities company's domestic currency deposit account without fixed terms at authorized banks to the newly opened indirect investment capital accounts at authorized banks;

c) In the case where foreign investors have not yet opened domestic currency contribution and share purchase accounts but have balances in domestic currency deposited in securities companies' domestic currency deposit accounts without fixed terms at authorized banks:

- Foreign investors shall open indirect investment capital accounts at authorized banks;

- Foreign investors shall transfer their balances in domestic currency from the securities company's domestic currency deposit account without fixed terms at authorized banks to the newly opened indirect investment capital accounts mentioned above to continue carrying out indirect investment activities in Vietnam;

d) In the case where foreign investors have opened domestic currency contribution and share purchase accounts and simultaneously have balances in foreign currency deposits in securities companies' foreign currency deposit accounts without fixed terms at authorized banks:

- Foreign investors shall convert the names of their domestic currency contribution and share purchase accounts already opened into indirect investment capital accounts;

- Foreign investors shall convert their balances in foreign currency deposits from the securities company's foreign currency deposit accounts without fixed terms at authorized banks into domestic currency; thereafter, they shall transfer this amount in domestic currency to the indirect investment capital accounts to continue carrying out indirect investment activities in Vietnam.

e) In the case where foreign investors have not yet opened domestic currency contribution and share purchase accounts but simultaneously have balances in foreign currency deposits in securities companies' foreign currency deposit accounts without fixed terms at authorized banks:

- Foreign investors shall open indirect investment capital accounts at authorized banks;

- Foreign investors shall convert their balances in foreign currency deposits from the securities company's foreign currency deposit accounts without fixed terms at authorized banks into domestic currency; thereafter, they shall transfer this amount in domestic currency to the indirect investment capital accounts to continue carrying out indirect investment activities in Vietnam.

2. In the case of discontinuing indirect investment activities in Vietnam:

a) Foreign investors are permitted to transfer their balances in domestic currency from the securities company's domestic currency deposit accounts without fixed terms at authorized banks and their balances in foreign currency from the securities company's foreign currency deposit accounts without fixed terms at authorized banks to their domestic currency accounts or foreign currency accounts at authorized banks for lawful purposes in Vietnam in accordance with foreign exchange management regulations and other relevant laws, or transfer them abroad;

b) Foreign investors may use their balances in domestic currency from the securities company's domestic currency deposit accounts without fixed terms at authorized banks to purchase foreign currency and transfer it abroad based on presenting valid documents and certificates in accordance with current foreign exchange management regulations.

3. In case, ninety days from the date this Circular takes effect, foreign investors do not implement the indirect investment capital account conversion as stipulated in Clause 1 of this Article, such foreign investors shall not carry out indirect investment activities in Vietnam through contribution capital and share purchase accounts, non-interest-bearing foreign currency and Vietnamese dong dedicated deposit accounts opened at permitted banks.

Article 18. Implementation Organization

The Director of the Office, the Head of the Department of Foreign Exchange Management, the Heads of relevant units under the State Bank of Vietnam, the Governors of the State Bank of Vietnam branches in provinces and centrally governed cities, the Chairmen of the Board of Directors, the Chairmen of the Board of Members, and the General Directors (Directors) of credit institutions and foreign bank branches shall be responsible for organizing the implementation of this Circular.